Quantitative Value, + Web Site: A Practitioner's Guide to Automating Intelligent Investment and Eliminating Behavioral Errors

CHAPTER 12

Quantitative Value Beats the Market

“It is the long-term investor, he who most promotes the public interest, who will in practice come in for the most criticism, wherever investment funds are managed by committees or boards or banks. For it is in the essence of his behaviour that he should be eccentric, unconventional and rash in the eyes of average opinion. If he is successful, that will only confirm the general belief in his rashness; and if in the short run he is unsuccessful, which is very likely, he will not receive much mercy. Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.”

John Maynard Keynes, The General Theory of Employment, Interest and Money1

In this chapter, we present the results of the examination into the Quantitative Value investment model described in the book. We've studied how to avoid stocks at risk of sustaining a permanent loss of capital, how to find the best value, and how to identify high-quality stocks. We've also analyzed the best approach to combine the components into a cohesive quantitative strategy. Here, we've conducted a range of analyses on the strategy to calculate its performance, and its risk/reward profile. We also conduct an exhaustive investigation into the robustness of the strategy by looking at its rolling 5- and 10-year returns, drawdowns, and alpha measurements, which we calculate across a variety of asset pricing models for robustness.

A criticism often leveled ...